Wednesday, 27 July 2011

The Neverending Shortage Story

If you spend much time reading mainstream media news, you'd be forgiven for thinking Australian streets were teeming with homeless people. Wall to wall struggling families, living on street corners, exposed to the elements and begging for their next meal.

Well, I haven't seen them myself, but I'm assured on a daily basis that Australia has a never-ending critical shortage of housing (despite this, the same media outlets also tell me we need to import hundreds of thousands more workers, but that's a never ending story for another day).

Back to the critical shortage. In short, it's bunkum.

A recent report by Earthsharing Australia has shown the Speculative Vacancy Rate in Melbourne to be almost 5% or 46,220 homes. This is more than double the REIV’s Rental Vacancy rate of 2.4%. Earthsharing have shown that a large volume of housing is being inefficiently allocated to the population, inflating house prices and contributing to urban sprawl. The owners of these vacant homes, property speculators, are investing purely for capital gain, hoping that a greater fool will purchase the dwelling from them later, for a higher price. This type of investment structure is often referred to as a Ponzi scheme.

In 'Real Estate 4 Ransom', Earthsharing's soon to be released documentary, the group will discuss this glut of misallocated dwellings and the impact on Melbourne society. Watch the trailer for 'Real Estate 4 Ransom' below.

In related news this week, the Sydney Morning Herald ran with a sensational article titled 'Tenants run for cover as vacancy rates plummet'. Designed to strike panic into the hearts of tenants everywhere, what followed was a thinly veiled infomercial for the real estate industry. It's going to get worse! Stop renting! Buy now! That was the hidden subtext. But look closer at the statistics (statistics the article manages to brush over quickly before warning us that the 'standard of living for the middle working classes is likely to deteriorate'.

The statistics show that far from vacancy rates plummeting, they're actually relatively flat. In some places, the vacancy rate is rising. In fact, the national rental vacancy rate according to SQM Research is 1.9%, which (apart from a brief rise in 2009) is roughly where it has been since 2005! Furthermore, these figures are likely to underestimate the true vacancy rate, because they only include rental properties advertised for three weeks or more.

Back to those homeless people. According to Homelessness Australia, 105,000 Australians are homeless
on any given night.This is an appalling statistic, given that almost 50,000 homes are vacant in Melbourne alone, and each of those homes could probably comfortably house several homeless people.

Why does the Australian government support the misallocation of housing to speculators, many of whom own multiple dwellings, when over one hundred thousand Australians are homeless? Why do we support those speculators with grants and tax incentives like negative gearing and capital gains tax discounts?

The answer is simple. Our governments are terrified of the economic impact of a property crash. If they don't artificially prop up house prices using these means, then prices are likely to fall, resulting in a decline in GDP, rising unemployment, and ultimately an election loss for that government. That's why every government, regardless of their pre-election commitment to affordable housing, will always encourage higher house prices once they gain office.

Always.

Lower house prices would offer dramatic benefits to Australian society. Speculators would be forced to sell the excess dwellings they currently hoard, single income families could once again afford decent housing, and the homeless people could be offered that shelter from the elements they badly need. And those lower house prices would free up disposable income, eventually reduce national debt levels, and enable capital to be allocated to more productive sectors of the economy.

That's my dream. My fear is this won't happen in my lifetime, and it certainly won't happen in sufficient time to benefit my own children, or any children growing up in Australia today. Not while our inept governments are in charge.

"Lower house prices would offer dramatic benefits to Australian society." That's right, and it's not mainly philanthropic either. A sweeping real estate industry renders an economy lavishing, providing more opportunities for buyers to fill, thus increasing the rates of sales and loans, payments and income.

As for loaners, they should keep in mind that investing is not an easy obligation to consistently pay, and taking steps like gauging your loans and appropriating your budget is a way to ensure home ownership. An investment property in perth can help you map out your options and walk you though the process of buying a house.

It is very unlikely that there is any housing shortage (on state level) in Australia, but if there was one Queensland and Northern Territory were the most likely to have it. This is very surprising because Queensland is the state that will be pointed out as oversupplied state by most of Australians.

House prices in Australia are significantly overvalued. Its like the Economist said, they are and will go down. The question is how long and how fast. This depends on supply and demand and if the US and UK markets are anything to go by, it may be in the publishers lifetime. The current economical conditions are more likely to cause a bust in the housing market in Australia as China and India are also slowing down as a consequence and commodities such as iron ore etc are being horded in shelters due to a slow down in demand. This will all have a direct impact to the Australian economy which is already losing its manufacturing and other services to countries like India and China due to high cost of employment. Australia is not immune to the global economy like many people would wish us to believe. Wait and watch the bubble burst!

Australia has vast amounts of land. I don't see how Australia can have a housing shortage. Places like Melbourne and Gold coast are struggling with low occupancy rates. Countries in Europe can have a land shortage due to a shortage of land. As the AUD continues to go up against other major currencies, manufacturing, services, tourism and immigration will go down. Australia's reliance on mining needs to fall. It needs to become competitive in this day and age and maintain what manufacturing base it has. As the world economy becomes more volatile and demand for commodities falls the mining sector too will being to see the strains. Has anyone seen the share prices of BHP and Rio over the last year. I believe that this downward trend will continue in mining prices as countries like Mexico, Africa(funded by China), India, Canada etc realize what savings can be bought about by looking at mining its own resources or of other nations where costs of procurement are cheaper (Eg look at the USA and its ability to tap into shale gas reserves). I am of the view that Australia is a one trick pony and it is loosing its glamour on the World stage as export costs are becoming ever higher due to the high value of AUD. All this will ultimately result in a property decline. Don't kid yourself it will happen, its about how to best prepare yourself for it. Did you see the television reality show on channel 7 the other night where they had to sell the properties well below cost.

The more they have pumped it up the bigger the ultimate bust. Rudd the dudd should have let the property market fall in sync with other advanced economies in 2008. No, he decided to piss many billions up against the wall to keep the bubble going.

House prices are high in Australia for two reasons - firstly, an excessive amount of debt created by the banks and lax lending standards and secondly, poor land release. This all flows through as asset price inflation. This suits investors, builders, politicians (the illusion of economic growth) and State Governments that derive tax revenues as a result of property sales. Applying mickey mouse supply and demand economic analysis is a waste of time - classical economics is useless at explaining the formation of bubbles.

Historically if we had better land release, a more unified and socially fair housing policy and more effective planning (transport access, etc) then property prices would have been flat.

Now watch all the investors rush to dump their assets as capital gains vaporise and the vacuous and useless politicians run for cover when it all turns to custard. Used to be concerned but have little sympathy anymore for people whose idea of getting wealthy is to sit on their arse and borrow.

Granting that the houses in Australia are overpriced, I think some of the homeless people will still be able to afford to rent(if not to own) a house if they really want to. If you will really get to know these people, you will notice that many of them chose that kind of lifestyle. Hard to believe, but true.

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